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The Case Against Medicaid Expansion

There are reasons why only half of the 50 states have signed up for Medicaid expansion.

Not that you'll find them easily in the mainstream press. They make boring reading. Stories explaining fiscal restraint usually do. Besides, they're so ... well ...conservative.

What you're more apt to find are stories of poor people dying because uncaring Republicans "who have never been poor in their lives" deny these unfortunates medical care. It's a common liberal litany.

Sadly, the cumulative effect on our psyches makes rejection of Medicaid expansion dollars a hate crime, and the governors and lawmakers who opt to do so evil monsters. Which is plain not true.

They dont want to deny people access to health care. But they do want to halt expansion of a program that offers limited access to quality care while devouring state budgets.

I'll risk boring the pants off you and with the help of the Galen Institute and Keith Hennessey, director of the National Economic Council,take a crack at explaining why 24 other governors besides Rick Scott are balking at expanding Medicaid in their states. Not that some of them won't embrace expansion in time. (See the map at the end of this story.)

Medicaid expansion is a complicated business for any governor charged with looking at thewell-being of his state, not only today but far into the future.

States are strongly being pressured to expand Medicaid to families earning up to $30,000 a year, as Obamacare allows. In Florida that would add about 1.4 million people. The feds will pay all benefit costs for this new population through 2016, then phase down to a 90 percent federal share from 2020 on. That's less than seven years away.

For each state and each governor, it boils down to these considerations:

There's no such thing as "free money"

The law doesn't offer states money without conditions. It reduces the price to the state of covering these new people. A state must still find the funds to cover its 10 percent of the new Medicaid costs. Sure, thats a tiny fraction of the total new costs, but Medicaid is a huge program and many states are already in dire financial straits. If a state cant afford its share, it doesnt matter how much the feds are offering. A governor has to look at his budget and prioritize the state resources at his disposal. Medicaid spending is one of the two largest components of virtually all state budgets.

Turning the money-spigot on is easy, not so turning it off

Thinking governors recognize that a commitment to expand Medicaid eligibility is likely to be permanent. Can you blame them for being risk averse? Once you grant eligibility to a group of people, you can't just cut it off. Governors have to consider the political and legislative traps Washington sets for them.

True, the feds are offering to pay all benefit costs for the first three years, and most costs after that. But the law might be repealed in the not-too-distant future. Might, not necessarily will. But, then what? Even if its not, Congress could cut federal match rates in the future to address federal spending pressures. The point is, choose your scenario: the state and the governor carry the can for the downside of fiscal risk.

Creeping federal requirements

States have some wiggle room in designing benefit packages for their Medicaid recipients and a lot of wiggle room designing insurance structures and setting payment rates. But the feds are looking at this new group of people as part of their Affordable Care Act eligibility expansions, along with others who will buy subsidized insurance through state exchanges. What if the feds want to impose new requirements on the exchanges, and then make the states to do the same with their Medicaid programs? Sorry, but the feds have a history of doing this in Medicaid.

Costs you can't see

Whenever a program like Medicaid is expanded, there's what is known as a woodwork effect. Some mothers and their kids who were eligible for Medicaid before Obamacare, but who had not enrolled, would be drawn to enroll with the increased publicity to sign up newly eligible poor, childless adults.

If a governor's focus is on enrolling poor people in Medicaid, this is a good thing. But it is also an increased cost to the state budget, especially because these mothers and their kids aren't eligible for the higher federal match rate in Obamacare. A governor considering whether to expand his program must include these additional costs in his decision, even though they dont directly impact the target population. A final consideration here is that the state bears the administrative expenses of expanding its program.

More people x more medical care = more spending

Yes, those who lack prepaid health insurance impose uncompensated care costs on hospitals. And, yes, the states pick up some of these costs through subsidies to those hospitals. Both would be reduced if more people had prepaid health insurance. But while expanded Medicaid eligibility means more and better medical care for those who were previously uninsured, it comes at an added cost to both state and local government. There is no free lunch here. Maybe a reduced price lunch.

Saying 'no' adds a bargaining chip with the feds

The feds and states are constantly negotiating over funding and rules for Medicaid and CHIP. It never ends. Governors know the Obama administration needs them to expand their Medicaid populations for Obamacare to approach its coverage goals. Congress wrote the law with an effective mandate on states to cover these people. But the Supreme Court inverted that power dynamic, meaning any governor who says no to expansion gains leverage for more federal funds or flexibility in other areas.

Why do the feds have to mandate it, if it's such a great deal?

The laws authors knew that subsidies would encourage some people and some states to buy health insurance or expand their Medicaid programs. They knew that others would not take advantage of the subsidies, so they mandated participation with penalties for noncompliance. The individual mandate and penalty tax survived the court challenges, while those imposed on states didn't. I think we can assume that without the mandate, some states will now choose not to expand their biggest (or second-biggest next to education) state spending program.

Just remember that the umbrella problem -- the problem for all of us, not just governors -- is this: If all states were to go along with Medicaid expansion, nearly 90 million people would be enrolled in the program by the end of the decade, including those newly-eligible under the Obamacare expansion.

But, as many as 60 percent of these new enrollees are likely to drop private coverage in order to sign up for Medicaid, moving from private to public insurance that will be funded by taxpayers. That will strain not only federal and state budgets, but shred the safety net for the poor. Why? Because they will be forced to compete with millions more people to get care from the limited number of providers who see Medicaid patients.

It might be easy for a governor to think, well, I'll take the money, this is all going to be somebody else's problem in 2020. But for any state leader with a strong sense of personal responsibility and fiscal restraint, who hasn't a clue where the extra money will come from to expand an already bloated program, there's nothing simple about the decision to participate in Medicaid expansion.